Parastatals that are cash-strapped and milking taxpayers dry

Auditor General Nancy Gathungu.

Several parastatals are in the red and survive solely due to taxpayer support.

Auditor-General Nancy Gathungu says in a series of reports that the number of state-owned enterprises in financial distress appears to be growing by the day.

The worrying trend will likely force the Treasury Department to spend more public money to get the companies out of the financial ICU.

Most parastatals are run as businesses that generate revenue to stay afloat and even make a profit.

In the latest audit, the Auditor General declared at least eight state-owned enterprises bankrupt. Gathungu fears this number could be even higher.

The alarming report comes at a time when MPs came across a state agency with 13 board members enjoying millions of shillings in stipends but no employee on staff.

The Kenya Fish Marketing Authority board, MPs have learned, was established eight years ago but has not done any work as no employee has ever been hired.

The agency has 13 board members, whose benefits in the last financial year amounted to Sh10 million, out of the Sh51 million allocation.

This highlights the level of waste within government that Gathungu recommends must be put to an end.

Her recent report signals that a number of government agencies are milking taxpayers dry without anything in return.

Some of the big names in financial trouble include the Kenya Broadcasting Corporation, South Nyanza Sugar Company (Sony), Rivatex, Kenya Bureau of Standards, National Museums of Kenya, National Oil Corporation of Kenya, Kenya Post Office Savings Bank (Postbank) , Postal Corporation of Kenya, Nzoia Sugar, East Africa Portland PLC and energy transmission giant Kenya Electricity Transmission Company (Ketraco).

In the audit report for the 2022-2023 financial year, Gathungu questions the sustainability of KBC, which, according to the report, operates on negative capital.

The public broadcaster’s liabilities amount to Sh94,108,387,000 against assets worth Sh1,301,992,000. This translates to Sh92,806,395,000 negative working capital.

“Further, the company has continued to incur losses, resulting in accumulated losses of Sh89,107,849,000. These are indicators of the company’s uncertainty about meeting its financial obligations,” the report reveals.

In another bizarre revelation, the sole surviving state-owned sugar producer – South Nyanza Sugar Company (Sony) – is operating with debts of Sh7.8 billion, exceeding its assets of Sh817.6 million and resulting in a negative working capital of Sh7 billion .

Gathungu says there is serious uncertainty about the future of the company.

At the Postal Corporation of Kenya, assets are valued at Sh2.3 billion against Sh9.1 billion liabilities, which means a negative working capital of Sh6.7 billion.

“These circumstances indicate the existence of material uncertainty, which may cast significant doubt on the company’s ability to continue as a going concern,” the report said.

The auditor has also raised a red flag over the financial health of the Kenya Bureau of Standards after it emerged that the company is operating with a negative working capital of Sh930.5 million.

Kebs – according to the report – has current liabilities of Sh2.2 billion against an asset base of Sh1.3 billion.

“Given the circumstances, the agency is technically insolvent and the financial statements have been prepared on the basis of continuity and continued financial support from the national government, bankers and creditors,” Gathungu said.

However, this is an improvement from the last financial year 2021-2022 when the agency had a negative capital of Sh1.2 billion.

Liabilities stood at Sh2.1 billion, compared to an asset base of Sh819 million.

At Rivatex East Africa Limited, the public textile company recorded a staggering loss of Sh3 billion as of June 30, 2023.

The huge loss, according to Rivatex management, was related to the unavailability of cotton, the high cost of raw materials including labor, electricity and water, fuel, spare parts and consumables, repairs and maintenance, which affected the company’s ability to deliver its products on time production and delivery became frustrated. .

The accountant questioned the sustainability of the company in light of the huge loss.

“Under these circumstances, the continued existence of the company, as a going concern, may depend on the goodwill and support of the government, bankers and creditors,” Gathungu said.

At Ketraco, debts have exceeded assets by Sh18.5 billion, leaving the company exposed to lenders.

The report indicates that the company has Sh20 billion in current assets while its liabilities are over Sh39 billion.

“This is an indication that the company was in a net debt position and may not be able to service debt as it matures,” Gathungu said.

Ketraco’s liquidity problems have been the subject of public debate even as the company prepares to execute projects worth billions of shillings.

The company has been in the news for its controversial Sh96 billion transmission project deals with Indian conglomerate Adani Holdings.

Despite the attractiveness of the large tender, the new audit shows that the situation is not rosy.

Part of Ketraco’s financial problems is a Sh9.2 billion debt awarded by an arbitrator to a contractor hired to build a transmission line.

Gathungu said the ruling, if left unresolved, could further negatively impact the company’s liquidity.

“It will likely have a negative impact on service delivery.”

It is not clear whether this is the same reward that earned interest of Sh2.4 billion.

Ketraco bosses have operated in the hope that an appeal against the ruling would succeed.

Gathungu is further concerned that Ketraco could be declared insolvent after a creditor filed a bankruptcy petition in the High Court in May.

The revelations come as the government plans to privatize loss-making state-owned companies.

The Treasury Department and the President’s Council of Economic Advisers have identified 35 parastatals that would be merged or liquidated.

The move is part of the restructuring supported by the International Monetary Fund.